The future for arbitration in Russia

On 24 April 2014, the Russian Arbitration Association (RAA) held a conference entitled, ’Future for arbitration in Russia’. The speakers, and those attending, attempted to answer the question whether or not there is a future for arbitration in Russia or whether that time has been lost forever.

The conference hosted more than 100 delegates amongst whom were representatives of the Ministry of Justice of Russia (the Russian MoJ), the Supreme Commercial (Arbitrazh) Court of Russia, the business community, the leading international arbitral institutions (LCIA, SCC, VIAC, ICDR, PCA, DIS, ICAC, etc.) and the legal community. Mikhail Samoylov, Senior Associate at KIAP Attorneys at Law and Lexis®PSL Arbitration contributor, discusses the events of the conference.

The new Arbitration Act—a cure for all diseases or an obstacle to the leading arbitral institutions?

It is well known that the Russian MoJ is developing a new arbitration act for Russia. According to the Russian MoJ, the new act has the potential to resolve all current problems facing arbitration in Russia. For example, the Russian MoJ`s speaker noted there are approximately 2-3,000 arbitration courts in Russia, but that approximately 80-90% of them are involved in illegal activity. Such courts are called ’pocket courts’ in Russia, ie they are affiliated with one of the party of arbitration. According to the Russian MoJ, the new arbitration act will require the registration of arbitration courts on a Russian MoJ register as well as requiring such courts to obtain a special permit to operate.

However, this proposal was criticised by some attendees of the conference. For instance, the speakers from both Ukraine and Latvia said that similar regulation exists in those jurisdictions, but it had not achieved the goal of removing partisan decision-making because a ‘pocket court’ may comply with registration and other requirements and still be biased in favour of one party.

Russian business community is afraid of arbitration courts in Russia

Unfortunately, such negative factors have had a marked influence on members of the Russian business community, many of whom favour foreign arbitration and foreign jurisdictions for resolving their disputes. This trend is supported, firstly, by a formal survey conducted amongst the community (results yet to be published), whereby a significant majority of respondents referred to the bias of arbitration courts as well as abuse of rights by tribunals as reasons in favour of arbitrating outside of Russia. Secondly, Roman Zykov, General Secretary of the RAA, discussed the results of a survey entitled ’Best legal practice in international commercial arbitration in the CIS’, which found (amongst other things) that:

the number of CIS-related arbitrations and total value of claims are growing from year to year (30% in the past 10 years)

three international centres the ICC, SCC and LCIA, and two regional – ICAC (Russia) and ICAC (Ukraine) remain the preferred institutions for Russian and CIS disputes. However, it will be several years before Asian regional arbitration centres, such as those in Hong Kong and Singapore, will start to receive the CIS-related cases

selection of an arbitral institution by the CIS parties is often determined by the nationality of the counterparties, value of the contract and the applicable law. The latter is often a decisive factor when it comes to choosing arbitration centres in London (English law) or Moscow (Russian law)

Russian (51%) and Ukrainian (29%) companies are the most frequent parties to arbitrations amongst the CIS states

the specialization of the CIS-focused arbitration centres will continue: some centres will predominantly hear construction disputes, whereas others will focus on financial, supply or energy disputes

despite lack of integration within the CIS arbitration market, the situation is gradually developing towards creation of a common arbitration services market. This is dictated by common economic, legal, cultural and political causes and certainly by the use of Russian as the most common regional language

Arbitrability of corporate disputes

The arbitrability of corporate disputes, ie disputes relating to share ownership, shareholdings in the authorized capital of business entities, arising out of shareholders’ agreements, etc, remains an issue in many arbitrations and much ink has been spilled discussing this subject. Perhaps these disputes will soon end if the draft of arbitration act resolves the issue of arbitrability of corporate disputes in favour of arbitration.

In addition, new issues of arbitrability have come to the fore recently, for instance, the arbitrability of disputes involving state contracts or disputes over land leases. I believe such an approach is not unusual because every state decides this issue sovereignty. However, Russia might attract more arbitration disputes only by developing pro-arbitration legislation as well as by training judges and lawyers.

What is the future for arbitration in Russia?

At first sight, the resolution of Russia’s issues with arbitration may be possible if arbitrators and/or arbitration courts take a firm stand on, for instance, clear criminal acts, like fraud or bribery, but such responsibility raises new questions, for example, whether arbitrators and/or arbitration courts should bear civil liability for any mistakes made in cases resolved in Russia and in accordance with Russian law.

In addition, some speakers remarked that a number of problems might be resolved if the Russian arbitration community adopts the RAA Code of Best Practice for Arbitration Proceedings. In my opinion, this idea is worth pursuing as it reflects a global trend arbitration and is based on IBA Guidelines both on Conflicts of Interests in International Arbitration and on Party Representation in International Arbitration as well as the approaches of arbitral institutions around the world. For example, the LCIA is going to take its own step in this area should the draft provisions remain in the final version of the LCIA Arbitration Rules 2014 and the Belgian Centre for Arbitration and Mediation (CEPANII) has already applied such a rule.

Finally, the representatives of established arbitral institutions, namely, SCC, LCIA, ICDR, VIAC, and ICAC shared their own visions for arbitration in Russia. They noted, and this is crucial, that a number of problems may be resolved without adopting the new arbitration act, but instead by a more intelligent approach being taken by the state courts. Unfortunately, this may not be achievable as some Russian judges do not have enough knowledge and experience of arbitration law and practice.

Nevertheless, almost all the representatives remarked that provisions of the future arbitration act, such as registration of arbitration courts in a special the Russian MoJ`s register, as well as the requirement for special permit to operate as an arbitration court, will go some way to inhibit the activity of these partisan arbitral institutions in Russia because it is likely to be difficult to meet the new requirements.